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Good question. I bet you’re looking for a yes or no answer though and it’s not quite that easy.
Everybody talks about the “death tax” but for most people, there’s no such thing. Generally, if you inherit money, you do not pay tax on it. There are a couple of states that tax inheritances, but the federal government does not.
But… (You were waiting for the ‘but’ weren’t you?) While you won’t be taxed on the inheritance itself, you can be taxed on the income of a deceased person’s estate. The easiest way to explain this is with an example.
Let’s say your Uncle Bob dies and leaves you $10,000 in his will. Cool. You get $10,000 cash, and that’s it. There’s no inheritance tax. He just left you a dollar amount; nothing to it but cash.
But what if instead of just leaving you cash, your Uncle Bob left you half of his estate? Suppose he leaves half of everything he owns to you and the other half to your sister. Let’s say he has $50,000 cash in the bank.
It might take some time for the estate to settle and for you and your sister to get what’s coming to you. During the time after your uncle’s death and before you settled the estate, the estate (that is, the stuff your uncle used to own) made some money. Interest was paid on the bank account. While you won’t pay tax on the $25,000 cash you get, you will pay tax on the interest that the cash earned while it was part of the estate. It will be “passed through” to you as the beneficiary.
That’s the part that’s really confusing to most people. You read the IRS books that say inherited money isn’t taxable—it isn’t. But the income that money earns while it’s sitting in the estate is.
The taxable income will be reported on a document called a K1. If you’ve never seen one before, it’s a little intimidating. But if you’re doing your own taxes, you just input the numbers from the K1 into the boxes in the software and you’re going to be okay.
So, if the $50,000 in the bank earned $1,000 in interest and you’re supposed to get half of the estate, then you’ll pay tax on $500 (your share of the interest earned) and you’ll get $25,500. (Half of the $50,000 plus half of the interest earned.)
Now, realize that I’ve really simplified this. Usually there’s more than just a bank account. There will be stocks, a house, maybe even a business. But the idea is basically the same: you pay tax on the income that the estate earns, but you don’t pay tax on the value of the actual stuff in the estate. (If we’re looking at estates that are worth over $5 million dollars, referred to as the $5 million estate-tax exemption—that’s another story, but that’s not what I’m talking about today.)
Hi Sarah,
I’m sorry about your mother. Even though you didn’t receive the stock until 2016, technically, you inherited the stock back in 2004 even though you didn’t know you had it. For the capital gains, you’ll need to use the value of the stock back in 2004.
Once thing to consider is reinvested dividends. Not all stocks have dividend reinvestment but many do. You’re looking at 15 years worth of reinvested dividends – stocks that were probably purchased at a higher cost than they were valued at in 2004. It’s just something to look at.
My Mother passed in 2004, she and my father had a trust with stock. I never received my stocks until 2016. My question is since the stocks were sold in 2019 do I pay the capital gains for the stock worth in 2004 or in 2016 when I actually received them in my name.
Hi Cali,
As always, I’m going to say it depends. My gut reaction is probably not. If you inherited the home because of your mother’s death (I’m sorry for your loss) but then there is most likely no tax for that. On the other hand, if your mother is alive and you got a portion of the sale as a part owner in the trust, then there could be taxes involved. (That’s what happened to me!) But, even then, it depends. So if your mother is still alive, there would be more questions. But, since you asked this in the inheritance post, I’m guessing that she’s deceased and that you will have no tax on that distribution.
Hi there,
I was given 35,000 from the sale of my mother’s home that was held in our irrevocable trust. Do I have to pay taxes on this amount?
Hi Frank,
Then I assume that once probate is taken care of and any taxes are paid, then the executor would get the checks out.
Thanks for the reply Jan, and thanks for your condolences… to answer your questions to my response, the answer is No. No estate needed to be broken up, no house being sold, as her widow is staying there. It’s really just from what i understand, the equivalent of like, a birthday gift; just going into her checkbook, writing the amount on there, and getting it to me. Nothing of hers needed to be sold off and whatnot. Apparently, she was sitting on a lot of money that not too many of us knew about, and decided that she was going to leave all her nieces and nephews a portion of it, as well as her sisters and of course, her spouse. That’s why i assumed it was “a simple inheritance”
Hi Frank,
I’m sorry about the death of your aunt. As far as timing for receiving your inheritance goes, I honestly don’t know. A lot of it depends upon the size of the estate, and how fast the executor of the estate can get things to work. For example: do they need to sell a house before disbursing the money? Was her estate large enough that they need for file an estate tax return? If yes, then they may need to hold some of the assets for awhile until the taxes are paid and they know there will be no audit. (Large estates can take over three years to settle.) While smaller estates can be handled much more quickly. But if anything is in probate – that takes time too.
So even with everything being fine and nobody fighting, there can be snags that prevent the funds from being distributed promptly.
Hi Cheryl,
I’m so sorry for your loss. I’m guessing that your Mom died in August of 2017 as it’s not August of 2018 yet. Generally, when someone dies, their family inherits their property at a “stepped up basis.” That means, no matter what your mother paid for the mobile home, the value of the home on the date that she died is the value of your “basis” in the home.
So, what does that mean for you? When you get that 1099 for the sale of the home for $65,000 – you put that on your tax return on the 8949 form- Sales and Dispositions of Capital Assets. You’ll put the sale in part 2 – Long term – because anything you inherit is considered to be a long term gain.
You’re going to check box b – long term transaction reported on form 1099 with basis not reported to IRS. Then, you’ll fill out the line as follows:
a. description of property – mobile home
b. date aquired: I for inherited
c. date sole: whatever date you sold it
d. proceeds: $65,000
e. cost or other basis: $65,000
you don’t put anything in f or g because there is no adjustment
h. gain or loss $0. Because you have no gain on this.
You have no tax to pay on this transaction.
Hi David,
There would be no federal tax on an estate of $200,000. You would need to check with someone from your state about state taxes. Here’s a link to another website with some information about state inheritance taxes. (This is not an endorsement, just a link to a site with information you can use.)
Hi Diane,
Your mother is allowed to “gift” you as much money as she wants to. There would be no tax on the $25,000, although she would be required to file a gift tax return disclosing the gift. Again, there is no tax to her or to you for that gift. For 2018, she may gift up to $15,000 to you without filing a gift tax return. So, if she wants to avoid the gift tax return, she can split the gift between 2018 and 2019. Or she could gift $15,000 to you and another $15,000 to your husband if you’re married.
Hello, thank you for making this site, as your example is almost identical to what is going on with me right now. My Aunt just passed, and i was told that she left me $10,000. There is no one fighting over the money, as she left equal amounts to the rest of the nieces and nephews. Her wife loves us all and isn’t contesting anything. SO FAR, it’s as clean and calm an inheritence could be. While it’s sad that she passed, it’s also a blessing because she had cancer of the lungs and brain, and was an absolute shell of herself, in massive pain, usually unresponsive, and flat out suffering, for weeks. I’m glad her suffering is over first and foremost, but I would be lying if i didn’t say i was happy she is leaving me something, but in talking about it with so many other people, i’ve heard a different story as to how long it would take to receive this money. So, again, let’s just say it’s a clean, non-contested inheritance for my brother and I. How long would it take to receive this money? For reference, I live in New York, Long Island to be exact (about 10 minutes from the border of NYC). I don’t know if there’s any other information you need, but that’s about all i know for now. So again, the question is, when can I expect to receive what she left me?
My Mom passed a month ago. She had an investment acct w/ JPMorgan worth about 55k. Her wish and dad’s stated intent is to pay off her medical bills and then split whats left. He claims she directed that to be cashed in before she died, which I highly doubt. He got the check today.
Since it was in Mom’s name and he wasnt on the acct does he need to pay taxes on it whether or not he recieved it after she died…and is that considered an inheritance? Or does he pay tax on it IF she did direct it to be cashed out. And if he owes tax on it does he need to or can he file a tax form and pay taxes on it now or does that go into his income and he pays taxes on that money at next years taxes?
last question…when he gives money to myself and my brother is that not considered a gift? And will he need to pay a tax on that? He quite honestly doesnt know what hes doing and altho he has promised to go talk to his tax guy I dont trust him at all.
Thanks
My Mom passed away in August, 2018. My sister and I finally sold her mobile home, paid the existing mortgage and ended up with 22,000 each. However, at closing, the title company said she is sending a 1099 to IRS for $65,000, the complete sale of the home???
I am confused and wondering do we have to pay any taxes on this?
I have a situation that I’m not sure how to deal with. My Brother and I are the last remaining relatives to my Grand Mother. She wishes to leave us her personal property upon her passing. She has property with a home on it. A couple of vehicle etc.. She needs to have her will redrawn because the witness of that will have since passed on. What I’m trying to determine is :
a) How would she gift her assets to us to where they would be tax free ? Can this be done via a simple notarized Last Will and Testament ? Does it need to be a Trust ? How much can she leave us without having to pay tax on it ? Let’s say that her estate is worth $200,000.00 and it is split between my brother and myself… would any portion of that be subject to State or Federal Tax “
my mother who is still living wants to give me 25 thousand from the trust fund. which I do believe is a non-revokable trust. Do we have to pay taxes on it and what percentage if so
Hi Sheri,
It would be capital gains. Your basis is the value of the stock on the date that your father inherited the stock. So if the value of the stock on the date your grandmother died was $100,000, then your capital gain would be $60,000. (160,000 – 100,000 = 60,000.)
You’ll also want to issue a nominee capital gain statement to your sister for half of the sale.
My grandmother left my father her stocks in her will. Several years later he signed them over to me (he is still alive) to split with my sister. I sold them for $160,000 and gave her half. Would that be considered capital gains or inheritance tax? I read somewhere that he highest you can be charged for capital gains tax is 20% depending on your income tax bracket, is this correct?
Hi Ito,
It takes awhile for an inheritance to be distributed. The estate has to be settled, taxes may need to be paid, etc. If you know you are to receive an inheritance, you could contact the executor of the will to ask about what to expect and the timeline of when things will happen.
One piece of advice – I wind up dealing with a lot of executors. Remember, someone died! People are hurting. So if you’re asking about your inheritance, please be respectful of that. You’re probably kind and wonderful, but some people behave horribly when there’s a death and money to be had. Just be considerate of the rest of the family. Thanks.
I apologize. how to get the inheritance from the benefactors. I say many thanks.
Hi Sherry,
First, I’m not an attorney, so you may wish to talk to a lawyer in Kentucky just to make sure you’ve covered all of those bases. Now, the property will sell at it’s updated value – so there should be no tax consequence there. And if her other assets are all cash, then I see no inheritance tax. I don’t know Kentucky law – so I’d check with a Kentucky tax person on that. I believe that there is a Kentucky estate tax and the top rate is 16%. But I don’t know the details on that.
With the new federal tax law, you Mother could leave up to 11.2 million dollars with no federal estate tax.
My mom owns several pieces of property in KY. In her will two of the properties will be left to one my sister and another to my brother. The other properties and all her money accounts will be sold and divided amongst all four siblings. Will there be any taxes to pay on any of the properties? All properties are fully paid. And will there be a need for a lawyer if everyone agrees to the will?
Hi Tammy,
It sounds to me like this is not taxable to you. They don’t tax cash or life insurance proceeds, they only tax income type things like if she had money in her IRA, or if they had to sell her stock and there was a capital gain. So it sounds to me like there is no tax on your inheritance. I’m sorry for your loss.
A friend of mine passed in Ohio and she had me in her will along with 10 other people. Her attorney sold everything of hers, cashed life insurance and said I would receive $4,500. I live in Kentucky, do I have to pay taxs on this money?
Hi Jane,
I’m sorry but I’m not an attorney and it’s against the law for me to give legal advice. I’m only allowed to give tax advice. I also am unfamiliar with New Mexico rules so this is just out of my league.
Can you simplify the difference between a will and a living trust in New Mexico? My parents think it’s best to only have a will and I am worried that the 4 inheritors will incur federal taxes on stocks/bonds if the estate is tied up in probate rather than immediately as in a living trust.
Hi Tina,
I had to deal with a similar situation myself. So here’s my first question to you. Does the house count as being left to you now – with your dad’s death? Or is it being counted as being left to you back when your mother died? That’s important.
If you are inheriting the house now – there should be no federal tax on the home because you will have the stepped up basis. If you supposedly inherited your share of the house when your mother died – then you would need to determine the value of the property when she died and you would pay the capital gain based upon that date.
I’m guessing that you inherited at your father’s death, not your mother’s. But that’s what you need to know to figure your tax – if you have any tax.
Hi Kim,
I’m sorry for your loss. If you inherited cash from your aunt, then it is not taxable to you at all. If the money you inherited was actually an IRA or so other taxable income, then it would be taxable to you, and you would be taxed in Florida because that’s where you live. (Retirement funds are taxed in the state the recipient lives.)
when my father passed away last year my sisters and I found out that he never updated the deed to him and his new wife, it is still in our mother and dad’s name, our step mom wanted to sale the home and found out she could not sale the home with out us 4 girls agreeing to the sale, the house is not being sold to our step mom getting 1/3 and the other 2/3 will be divided between the 4 girls and I am trying to find out about how much taxes I will have to pay on $27,000.00 dollars. we live in Nashville, TN and I am trying to make sure I put up the amount I will have to pay in taxes.
I live in Florida. I inherited $21,000. From my aunt in California do I have to pay taxes? And if so which state?
Hi Elizabeth,
I’m so sorry for your loss.
I deleted your last name, I figure it’s not a good idea to post on the internet that you received a large inheritance!
So here’s the thing about inheritance taxes. There is no tax on inheriting 1.5 million dollars. If your father left you $1.5M in cash – you will pay no federal tax on that. Some states have inheritance taxes that you might have to deal with. Here’s a link that might help: Tax Foundation although your best bet would be to discuss it with a tax professional.
But – while you might not have to pay an inheritance tax – there could be estate taxes. For example: let’s say that the $1.5 million was all in your father’s IRA. That would be taxable income to you – so you’ll need to discuss with the executor or accountant about the funds your father had and what the tax situation will be.
I probably just made that more confusing for you. Sorry about that. Bottom line – if something is cash – or equivalent – you won’t pay tax on it. If your father would have had to pay tax on it, then most likely, you will too.
Hello my father left me 1,500,000.00 how much taxes would be taken if I live in the US.
Thank you this is very helpful.
Hi Thomas,
I’m sorry for your loss.
It sounds to me like you are getting a cash inheritance so that should not be taxable to you in the US. I don’t know anything about UK tax law so you’ll need to speak to someone there about that.
Since the inheritance is under $100,000 USD then you will not be required to file a for 3250 with the IRS. (If you did have to file one, there’d be no tax to pay with it, it’s just a reporting form.)
I just inherited $27000 from the close of my grandfather’s estate in the U.K. I live in California will I need to pay taxes on this. Does this count as an Income?
Hi Paula,
The sale of a home is usually not taxable. You would pay capital gains the sale of a home, but you get the stepped up basis so there is no gain, therefore no tax. Neither California nor Arizona have estate taxes. Now, if your father’s estate had taxable income – there could be taxes on things like dividends or annuity payments, but the sale of his home should not be taxable to you.
I received $150,000. From the sale of my fathers estate. His home was in Calif. I live in AZ. Does AX have Estate tax or inheritance tax?
Thanks,you answered my exact question.
Hi Maggie,
Generally, there will be no estate tax on estates below $5,450,000 – so you’re looking clear from here. But – I just want to make sure of a few things. First – you’re talking about the sale of her estate. If that includes the sale of stocks – well then there could be capital gains tax if – and that’s a big if – the stocks increased in value since the date of her death. Usually, an estate is sold, and dispatched with promptly, but every so often I see them dragging out and you get capital gains on those stocks. Usually, if there is a sale of a home or property, there isn’t really a capital gain because the property’s stepped up basis is the sales price. (Usually, anyway.)
California does not have an estate tax. Oregon does not have an inheritance tax (it has an estate tax, but since the estate is in California, you should be clear there.)
So it looks to me like you’ll be paying zero taxes on that inheritance! Although you should check with the executor of the estate to make sure. But it sounds to me like you’re just getting cash from the sale of the property – which should have zero taxable gain.
I am going to be inheriting about $44,,000 from the sale of my mom’s estate in CA. I live in Oregon. How much will I to pay the IRS on that amount. Do I have to pay Inheritance Taxes on that in Oregon?
Very helpful. Thank you.